Construction work was much weaker than expected in Q3, at -2.8% vs an expected +0.9% market and +0.6% Westpac.
Detail
Weakness was broadly based.
Engineering -4.5%; residential -1.0% and non-residential building -2.4%.
Comment
The Q3 result is a surprise, although we are mindful that construction work can be volatile quarter to quarter, impacted by weather disruptions.
We anticipated a rise in construction activity in Q3 underpinned by strength in public construction, with a focus on public transport projects. There is considerable upside to public works and we expect this to drive construction work higher over coming quarters.
The decline in residential building work is less surprising. We assess that home building is at a turning point currently given the pull-back in approvals. Home building activity is expected to decline in 2019 and to contribute to some slowing in overall economic growth in 2019.
For Q3, the sharp fall in construction work will dent GDP growth. We are currently on a GDP forecast of 0.7%qtr, 3.4%yr. Risks to this number are now clearly to the downside. Although, we are mindful that jobs growth was robust in the quarter at 0.7% and with full-time employment up 0.8% – a labour market performance which suggests the economy continued to move ahead at a solid pace in the period. Tomorrow we receive an update on business investment, with the capex survey, ahead of the national accounts on Wednesday December 5.
